Oil isn’t dead – just look at the data

Green Party MP Elizabeth May recently made an incredibly inaccurate statement about the future of Canada’s energy sector. In a discussion with reporters on Wednesday, Ms. May warned against any assistance for one of our country’s most important sectors, saying the economic shock from the COVID-19 pandemic proves that “oil is dead.” Bloc Québécois Leader Yves-François Blanchet agreed with May’s remarks saying that “oil is never coming back”. These statements from prominent elected officials are misleading and not supported by facts.

According to pre-pandemic data from the International Energy Agency (IEA), global oil and gas demand will continue to grow for decades. Specifically, demand for petroleum and other liquids will increase through 2050, even as the share of these sources in global energy demand declines from 32 per cent in 2018 to 27 per cent in 2050. Similarly, natural gas consumption is expected to increase by 1.1 per cent per year. Overall, the IEA concludes that oil consumption will still be key to meeting global energy demand for decades to come.

The COVID-19 crisis is having an impact on oil markets as people’s movement, particularly commuting is constrained reducing demand for transport fuels (including gasoline and jet fuel). Keep in mind that mobility and aviation account for nearly 60 per cent of global oil demand. Not surprisingly, a recent IEA report took into account the impact of COVID-19 and found that there will be a dramatic decline in oil demand in 2020. Specifically, global oil demand is expected to be around 90.8 million barrels a day in 2020, down around 9.3 million barrels a day from 2019. However, given that demand declines in 2020 are directly related to the pandemic, oil demand is expected to return when lockdowns are eased and economies begin to reopen. Indeed, the IEA predicts a “sharp rebound in 2021,” and despite the contraction in 2020, demand between 2019 and 2025 is projected to rise by a 5.7 million barrels a day. Thus, the recent statements by Ms. May and Mr. Blanchet are flawed given that medium-term IEA projections show global oil demand growing.

It’s also important to recognize that short-term demand is actually increasing for certain petrochemical products because of greater consumer demand for packaging and personal protective equipment such as N95 masks . Not surprisingly, the two elected officials ignored this important consideration in their recent statements.

In addition, these deeply flawed statements misunderstand the national importance of Canada’s energy sector. According to Natural Resource Canada, in 2018, the energy sector generated more than $220 billion in economic activity and nearly 11 per cent of our country’s economy. Perhaps most importantly, Canada’s energy sector employed (directly and indirectly) and supported more than 830,000 jobs. The energy sector also contributes nearly $17 billion to government coffers through corporate income taxes, sales and payroll taxes, royalties and land sales.

The reality is that global demand for oil is set to rise in the coming years. Canada can and should play a big part in meeting that demand. Otherwise, we would cede ground to other countries, many of whom have higher GHG emissions and lower overall environmental standards compared to Canada.

Overall, it’s difficult to see how rising oil demand over time constitutes death or that “oil is never coming back”. Elected officials should review the evidence before making such claims.